Future Business Leaders of America (FBLA) Business Law Practice Exam

Who is referred to as the principal in agency law?

1. The person who authorizes an agent

2. The government official in a trial

3. A witness in a court case

4. The defendant in a lawsuit

The correct answer is: The person who authorizes an agent

In agency law, the principal is defined as the individual or entity that authorizes another person, known as the agent, to act on their behalf in business dealings and legal matters. This relationship is fundamental in agency law, which governs situations where one party (the agent) is allowed to make decisions or perform actions that legally bind another party (the principal). The principal is responsible for any actions taken by the agent within the scope of their authority. This means that if the agent acts in accordance with the principal’s instructions, the principal is legally bound by the agent's actions. Understanding this definition is crucial for recognizing the dynamics of agency relationships, which are prevalent in various business contexts, including employment, partnerships, and corporate governance. The other options relate to roles in legal processes but do not align with the concept of agency. A government official in a trial, a witness, and a defendant are all terms that pertain to the judicial system rather than the specific agency relationship characterized by the principal-agent dynamic. Therefore, the correct identification of the principal as the person who authorizes an agent accurately captures the essence of agency law.